Public Bill Committee

[John Robertson in the Chair]

John Robertson: We resume with the consideration of amendment 151 and the amendments grouped with it, which now include new clause 10.

Clause 36  - The Pubs Code

Amendment proposed (28 October): 151, in clause36, page31, line2,leave out “large”.—(Sheryll Murray.)

Question again proposed, That the amendment be made.

John Robertson: I remind the Committee that with this we are discussing the following:
Amendment 152, in clause36,page31,line2,leave out “also”.
Amendment 162, in clause36,page31,line4,at end insert—
“(b) the Secretary of State shall ensure that provisions of the Pubs Code which carry costs which smaller businesses would find difficult to absorb, as prescribed, do not fall upon those pub-owning companies who own less than 500 premises,
(c) such provisions to be prescribed may include—
(i) the duty to employ a Code Compliance Officer, and to file annual Code Compliance Reports,
(ii) the duty to employ a business development manager and provide training thereto,
(iii) the duty to provide parallel free of tie rent assessments”.

This amendment exempts small family brewers from certain aspects of the draft Pub Companies Code published in “Pub Companies and Tenants: Government Response to the Consultation” by BIS in June 2014.
Amendment 70, in clause36,page31,line20,leave out “large”.
Amendment 157, in clause59,page40,line30,leave out “D” and insert “E”.
Amendment 158, in clause59,page40,line40,at end insert—
‘(6) Condition E is that the premises is owned by a “pub owning business” or a “large pub owning business” as defined in section 60 (1) (2) and (3).
(7) A premises which may meet conditions A-E, but is a premises that was not intended to be subject to the pubs code as defined in section 36(1) and (2) is excluded”

This amendment further clarifies the subject of the Code as being a premises which is part of a pub owning company or a large pub owning company.
Amendment 154, in clause60,page41,leave out lines 5 and 6.
Amendment 71, in clause60,page41,line6,leave out “one” and insert “500”.
Amendment 155, in clause60,page41,line8,leave out “pub-owning”.
Amendment 72, in clause60,page41,line8,leave out “large”.
Amendment 159, in clause60,page41,line10,leave out “tied”.
Amendment 156, in clause60,page41,line12,leave out “pub-owning”.
Amendment 73, in clause60,page41,line12,leave out “large”.
Amendment 160, in clause60,page41,line15,leave out “tied”.
Amendment 161, in clause60,page41,line16,leave out subsection (4).
Amendment 192, in clause61,page41,line31,leave out paragraph (b) and insert—
“(b) who is party to negotiations which have reached the stage of a provisional trading agreement for the prospective tenancy of a premises which are, or expected to be, a tied pub ahead of any final terms of the agreement being agreed.”.
Amendment 66, in clause61,page41,line42,leave out
“and includes a tenancy at will”
and insert—
“but excluding tenancies at will and agreements of less than 12 months”.
New clause 10—Definition of tenancy: restriction—
“For the purposes of Part 4 of this Act, and the avoidance of doubt, franchise agreements accredited by the British Franchise Association shall be excluded from the definition of “tenancy” mentioned in section 61, subsection (2).”

Andrew Griffiths: Thank you, Mr Robertson. I am grateful for your advice and to be able to speak to new clause 10.
The unexpected adjournment on Tuesday has allowed me to make a point that is of particular importance—I declare an interest—to Marston’s, which is based in my constituency and operates a pretty unique franchise model.
The Government are keen to ensure no wriggle room in the regulation of ties. Companies can be ingenious in finding ways around well-intended regulations and rules, so I recognise that some companies have what is described as a franchise model but is actually, in another word, a tie. I would not in any way, shape or form seek to absent such companies from their responsibilities under the Bill. The Marston’s model, however, is uniquely different from the tie. I will explain briefly to the Committee why its franchise agreement is different.
In a Marston’s franchise, the franchisee receives a property, fixtures and fittings, capital investment, and repair to fixtures, fittings and the building. All the bills are paid by Marston’s, including the rates, the water and the electricity. The only bills not paid are the council tax and the staff wages. Services include training, marketing, business support and the products sold. For that, the franchisee takes a share of the income and pays a fixed business fee. The cost of products to the franchisee is irrelevant, because the franchisee is paid a percentage of the income of the pub and the contract works like this: goods are delivered to the pub and the franchisee holds them on behalf of the franchisor. There is no cash transaction or purchase of the beer or other products sold through the pub. At no time does any cash change hands in respect of payments for those products. The franchisee and the franchisor each take an agreed share of total income from the pub.
The Committee can see that that is very different from the tied model in its operation. The other interesting factor is that the franchisee actually has the ability to set the retail selling price. Marston’s in effect supplies everything to the franchisee, who then dictates the choice of price at which to sell things. Marston’s simply takes a share of the income.
Marston’s and I, as its Member of Parliament, are concerned about the Bill. Companies such as Costa—I advise the Committee that other coffee houses are available—and other food-and-drink operators operate their own model. The pub franchisee, however, in that new and exciting model is at risk of being covered by a code that is designed for a completely different model. Marston’s has invested heavily in a new and exciting way of doing business, which to my knowledge has had no complaints brought against it similar to allegations made against the tie, so the Committee can understand that it would be unfortunate if Marston’s and its model were hampered as a result of the Bill.
My new clause is simple. It seeks to exempt any franchise agreement accredited by the British Franchise Association. I think we all accept that the association acts as a stamp of quality for a proper franchise model. It would not authorise and accredit any franchise agreement that was not a proper franchise agreement.
If the tie, as they say, swims like a duck and quacks like a duck, it is a duck. We need to cover the tie, but as I have explained—I am happy to furnish the Minister with more details if she wishes—if we have a true franchise model that works for both the brewer and the franchisee, none of us would want to see it hampered. I do not intend to press new clause 10, because it is obvious to anyone that the Government need to look at this. I hope the Minister will take that on board, discuss it with officials and come back with a solution.

Oliver Colvile: I am always delighted to serve under your chairmanship, Mr Robertson, especially as you are a fellow member of the British-Irish Parliamentary Assembly.
I did not intend to speak in this debate, but I am so enthralled by the way in which this has come about that I would like to ask some questions. I pay tribute to my hon. Friends the Members for Burton, for South East Cornwall, for Newton Abbot and for St Austell and Newquay, and I thank them for informing me. I feel better informed than I was.
As I have previously explained, I have no brewers in my constituency apart from some micro-brewers, which is why I have asked a series of questions to find out how they are affected. I have a large number of tenants in my patch, which is a totally inner-city, urban constituency. I therefore want to talk about tenants and the consumer. Ultimately, the consumer seems to have been somewhat forgotten in this story. No doubt I may be corrected by my own side, or by the Opposition for that matter—I am very willing to listen to what they have to say on this subject—but it seems to me that if there is a problem with the pricing of beer, or if there is an issue with the owning company, tenants who are tied to a brewer should have a place to go to in order to try to resolve the issue. I am not sure about family brewers. If I were a tied tenant of a brewery, how would I be able to resolve an issue if I did not have recourse to the adjudicator? It would be helpful if someone were able to explain that to me.
This morning I spoke to the landlord of the Rising Sun, which is a delightful pub in Compton in my constituency—[Interruption.] I would be delighted if hon. Members wished to come with me to the Rising Sun for lunch one day.

Several hon. Members: Mine’s a pint!

John Robertson: Order.

Oliver Colvile: The landlord is a lessee of Enterprise Inns.

Sheryll Murray: Will my hon. Friend give way?

Oliver Colvile: May I conclude my bit? I will do so with trepidation and take an intervention in a second.

Sheryll Murray: It is on this very point.

Oliver Colvile: I want to make my point before I forget it. The landlord told me that, because he is tied, he has to buy from Enterprise Inns, which charges him significantly more for his barrel of beer than he feels is necessary. Ultimately, all this will have a price for the consumer. If I go into a pub to buy a pint of beer, I do not want to have to pay over the odds.

Sheryll Murray: My hon. Friend may remember that Plymouth Breweries, which was based in Stonehouse, right in the middle of his constituency, sold to Courage, which was then bought by one of the big pubcos. Enteprise Inns is one of the large pubcos, with more than 500 pubs, so it would be included in the enhanced code.

Oliver Colvile: I thank my hon. Friend, whom I share an office with. There will, I suspect, be interesting ramifications, and no doubt we shall have a pint of beer to discuss the matter as well. However, there are two things to mention. First, Plymouth Breweries was at Stonehouse, but it no longer is, so it is no longer in my constituency. Secondly, I am concerned with a principle about where a licensee, lessor or, for that matter, a tenant can go to get the issue resolved. I would be interested to hear about that from the Minister.
I have been asked to raise a matter by the British Franchise Association. Its simple request is for the Minister to confirm that the adjudicator will ensure that premises that inadvertently meet the four criteria in clause 59 defining a tied pub but are self-evidently not pubs, such as Harry Ramsden’s chip shops, are clearly excluded from the code when it is finally drafted.
I should be very grateful if my hon. Friend could find time to answer my questions and give me some reassurance for my man at the Rising Sun, who serves me my pint.

Toby Perkins: I will speak briefly to new clause 10. I am glad to hear that the hon. Member for Burton does not intend to press it to a vote now, but wanted the issue to be debated. He is right to say that the model adopted by Marston’s in its franchise pubs is different from that in its tied pubs. It is an important question of definition and I think the debate that we have had so far has demonstrated significantly that quite a bit of tidying-up work is needed on part 4. I think that we will return later to many such questions.
I have reservations about what the outcome of the discussion will be. I understand entirely that the specific company that the hon. Gentleman referred to operates its franchise model differently from the way a traditional tie works. However, if, having taken the significant step of deciding to set up a regulator, we then allow a different body—the British Franchise Association—to decide who will be included, we are imposing on it a completely different expectation from the current one.
At the moment the association does an excellent job as the representative body for franchisors and franchisees. I was very pleased to speak at its conference this year. However, if it were to become the arbiter of who should or should not come within the code, it would be subject to totally different expectations, and I think that the new clause is drafted in a way that would have been problematic.
However, what has been shown up is the insecurity that many of us feel about some of the clauses. There is a similar mindset behind our amendment 162, and a recognition that we want the code to cover certain people—the ones we imagined it would cover—but now also feel that many new people are being brought within it despite the fact that we did not expect or call for that. This is a useful moment to reflect on any concerns we have, and on the fact that there will need to be much more work before the Bill finally passes through the House. I am pleased the hon. Gentleman will not press his new clause, but he has raised an important point.

Jo Swinson: It is a delight to respond to the debate, which started on Tuesday and which is concluding this morning. We have had a genuinely interesting debate, with contributions from both sides. It has been primarily about family brewers and who should be covered by the statutory code, and I hope to be able to reassure hon. Members.
On the specific point raised latterly by my hon. Friend the Member for Plymouth, Sutton and Devonport about whether the Bill as drafted might end up inadvertently covering restaurants that meet the criteria in clause 59, I am absolutely happy to confirm that we are legislating for a pub code and that the intention is that it should apply to pubs. I am aware that one restaurant chain thinks it might inadvertently be caught by the current definition of a tied pub. Most restaurant chains, of course, would not be covered; many use managers, some do not sell alcohol and others have no purchasing obligations for the alcohol sold on the premises. It is, therefore, a limited problem, but it is none the less important to highlight it, and we need to address it.
We need to make sure that restaurants are not improperly covered by the pubs code and, importantly, that tied tenants of so-called gastropubs, which sell food, receive the protections we intend. I give the Committee an assurance that the issue merits further consideration, and I hope to give it more thought, to do more work on it and to return to it on Report.

Toby Perkins: I am grateful that the Minister will be giving the issue more thought and will return to it. She will be gratified to know that the Opposition have been giving it some thought for her, and that amendments 157 and 158 are designed precisely to ensure that hotels, restaurants and others are exempted in the Bill and are not, as the hon. Member for Plymouth, Sutton and Devonport rightly said, caught inadvertently.

Jo Swinson: Indeed. Those amendments are not necessarily the best way to deal with the issue, but I absolutely assure the Committee that we want to make sure that the issue is covered and that we have something that is watertight. We want to work with stakeholders to make sure that that happens. I give that assurance to the Committee.

Stephen Doughty: I appreciate the Minister’s willingness to give the issue extra thought. I have a particular constituency interest, because a big family brewer—Brains—is based in my constituency. It produces excellent beer, and it is a big supporter of the economy and the community in south Wales, particularly in Cardiff. Has the Minister heard from any of the family brewers since the interesting and wide-ranging debate that we had the other day? If so, what additional input will she take into account?

Jo Swinson: I will certainly come on to the issue of family brewers. I was just hoping to deal with the Nando’s question, if I may call it that. On family brewers, my Department has been in touch with them, and I have met various hon. Members who represent them. This is very much a question of working alongside stakeholders to try to get the best answer.
Different proposals have been put forward in the Committee today about how we can best deal with this question. Amendments 70 to 73, which were tabled by the hon. Member for South East Cornwall, would remove the family brewers, and indeed any pub-owning business with fewer than 500 tied pubs, from the scope of the legislation. It is important to recognise that the amendments are targeted not just on the so-called family brewers, and that about 60 companies would be caught by the change.
I recognise the strong support that is understandably and rightly being shown by constituency MPs who have these brewers in their areas. It is fair that they put these points and that we respond to them. It is also fair to say that, when we consulted on the issue last year, we did not include any companies with fewer than 500 pubs. Nevertheless, I caution against the amendments, however well intentioned they are, because their unintended consequence would be to undermine the overall provisions of the Bill, particularly the important protections for the tenants and consumers who must be at the heart of our discussions, as my hon. Friend the Member for Plymouth, Sutton and Devonport rightly reminded the Committee. They would mean that 6,000 tenants would no longer have the protection of the statutory code.
Following the consultation, from which we gained a wide variety of evidence that I will come on to shortly, we took the view that we want all tied tenants to have a basic level of protection. They will be covered by a statutory code and will have the ability to refer disputes to an adjudicator.

Sheryll Murray: Does the Minister agree that trying to reassure family brewers by using language such as “People with fewer than 500 pubs would be excluded from any statutory code by the Secretary of State” has meant that family brewers are perhaps reluctant to trust that changes will be made through secondary legislation? They are quite rightly suspicious that promises will not be honoured.

Jo Swinson: I hear my hon. Friend’s point. It is sensible for the Government to proceed by setting out a series of proposals, consulting on them with the public, and responding to the evidence that comes back. That will sometimes mean changing and amending the policy. If the Government are not prepared to change the policy sometimes as a result of a consultation, one could argue that there is no point in conducting consultations in the first place. Indeed, the charge is often levied against Governments of all colours that there is a question as to how meaningful consultations are. We have conducted a public consultation and have responded, and yes, that has meant that some changes have been made to the initial proposals, but I would argue that that is for a very good set of reasons.
When we took evidence, Kate Nicholls from the Association of Licensed Multiple Retailers made a powerful point:
“size is not an indicator of good or bad behaviour. It is an indicator of risk in the marketplace, because of the potential that you have to affect more people, but any individual lessee who is suffering—if the tie is not operating correctly for them or if they suffer abuse—needs to be dealt with fairly…We do not want to leave lessees of smaller companies unprotected.”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 16 October 2014; c. 90, Q194.]

Toby Perkins: On the point made by the hon. Member for South East Cornwall, does the Minister agree that amendment 162 would ensure that small family brewers did not have to rely on secondary legislation? Right here, right now, through primary legislation, they could be made aware of all the exemptions that would apply to them, to which I believe the Minister intends to add. The sensible move would be to back amendment 162 and exempt family brewers in primary legislation, because otherwise the Minister is right in saying that there will have to be a tidy-up, one way or another.

Jo Swinson: It is interesting: increasingly, the view is expressed that we must ensure that the burdens on smaller pub companies with fewer than 500 tied pubs are not too onerous, but different approaches to achieving that have been suggested. The amendments tabled by my hon. Friend the Member for South East Cornwall suggest one way to deal with the issue: a blanket exemption and therefore no statutory code for any company without 500 tied pubs. The hon. Member for Chesterfield suggests an alternative method, which involves a basic statutory code for everyone that protects good standards to a decent level, alongside an enhanced code with an additional layer for larger companies, in which, it could be argued, greater abuse is occurring, and which have the ability to deal with heavier regulation.

Andrew Griffiths: I completely accept the Minister’s argument about the need to respond to the consultation and, of course, to make changes if the facts change. Will she provide details of what has changed since the Secretary of State wrote to one of our colleagues in August to suggest that companies with fewer than 500 pubs be exempt? What changed between the end of the consultation and the inclusion of family brewers in the Bill?

Jo Swinson: I am about to come on to some of the complaints that we have received about family brewers, many of which came to light when we asked for evidence in the consultation.
My hon. Friend the Member for South East Cornwall pointed out that the Secretary of State is quoted in Hansard as having said, in Business, Innovation and Skills oral questions, that he had
“no wish to create problems for the small, family-owned pubs”.
That is absolutely true, but I think it is worth recognising that in the same answer he said, in response to the hon. Member for Chesterfield:
“Small, family-owned pubs are already subject to the voluntary code…it would be right for tied pubs of all kinds to be given some protection.”—[Official Report, 11 September 2014; Vol. 585, c. 1064.]
That is consistent with what I propose should be achieved.
As I said, there have been complaints about family brewers. For example, in the consultation, one tenant of a family brewer told us:
“The rent review process is very near ‘take it or leave it’; there are never any form of calculations produced by the brewery to attempt to justify rent levels.”
That goes to the heart of the issue of transparency, which we are trying to address through the statutory code. Another tenant of a family brewer told us:
“The exterior of the pub has not been decorated by the brewery in at least 9 years and has looked in a sad state for the past five years or so. Repairs are rarely carried out by the brewery. In pre-recession trading conditions we often undertook the repairs ourselves at our own expense.”
Another tenant told us that, following the sale of the freehold of his pub from a large pub company to a family brewer, he found himself “considerably worse off” under the family brewer due to new price lists and a restrictive list of beer choices, so there is evidence that this problem extends beyond the larger companies. As we heard from Simon Clarke in the public evidence session, the family brewers are “not immune” from these problems.

Andrew Griffiths: To ask a reasonable question, if those specifics are the determining factor and have tipped the balance in favour of putting family brewers into the code, with huge regulation and huge costs as a result, can the Minister reassure the Committee that she has checked the facts relating to those cases? Has she given those family brewers a chance to put the other side of the argument?

Jo Swinson: I take issue with my hon. Friend’s comment about “huge costs”. I liked what he said on Tuesday: that he liked the Bill and appreciated and supported these measures—although Hon. Members might be forgiven for querying that to some extent, given the prolific number of amendments he has tabled, which perhaps seek to undermine some of the aims of part 4. He said that he liked it because it guarantees that pubcos
“have to do what they say they are doing.”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 28 October 2014; c. 321.]

Sheryll Murray: Large ones.

Jo Swinson: Yes, but this is also important for other pub companies. Given that they are signed up to the voluntary code, this is about making sure that they do what they say they are doing. That is the key principle at stake.

Sheryll Murray: Will the Minister give way?

Jo Swinson: Yes, but I want to respond to the specific question from my hon. Friend the Member for Plymouth, Sutton and Devonport on what the consequence would be if the amendment was carried.

Sheryll Murray: When I moved the amendment I asked the Minister whether she could say what costs were to be placed as a burden on the small, family tenants. She will remember that they are happy to fund the voluntary code at a cost of about £90 per pub. Could she say exactly how much it would cost to include them in the statutory code? Could she also answer my question regarding her letter of 24 October about what additional benefits she has put forward, besides removing their requirement to produce an annual compliance report?

Jo Swinson: I will certainly do so. The question was: if amendment 70 and its consequential amendments were to be passed, what would the situation be for tenants? What protection would they have? I remind the Committee that the Government want to ensure that no tied tenant will be less protected than they currently are, and that there is some kind of consistent regulation across the industry. The industry’s self-regulation process is in train. I appreciate that there are differing views about their effectiveness or otherwise, but none the less, there are the Pubs Independent Conciliation and Arbitration Service and the Pub Independent Rent Review Scheme. There is a real concern about their long-term sustainability, however, once the statutory code is in place, because the large pub companies, which provide the lion’s share of funding for that voluntary approach, will no longer contribute towards it. The consultation evidence suggested that the risk to them was real and significant.
My hon. Friend the Member for South East Cornwall asked me on, I think, Tuesday whether I recognised the commitment made by the family brewers to continuing funding self-regulation. I absolutely accept that they have said that they will do that. However, there is no guarantee that such a commitment will continue in the long term. She suggested that the cost for those funding the self-regulation of those smaller brewers would be £90 a pub. One of the small brewers suggested in evidence that it would be about £100 a pub; those figures are in a similar ballpark.

Andrew Griffiths: Will the Minister give way?

Jo Swinson: I would appreciate it if the hon. Gentleman allowed me to make this point; then I will happily take his intervention. The adjudicator’s cost, as set out in the impact assessment, is expected overall to be £1.75 million a year, which will cover about 20,000 tied pubs. On a cost-per-pub basis, that is about £90 a pub. That is a good benchmark for what the cost might be, but I will make two further points.
When I look at the costs that these companies face, I assume that compliance is already included, because they are signed up to the voluntary code and they say that they are complying with it. This measure is about ensuring that those companies that are compliant also fund the adjudicator. Therefore, the additional cost is £90 a pub. I will come on to whether any costs in the draft code could be removed to make the cost of compliance the same as it is now.
The other point about the £90-a-pub cost of funding the adjudicator is that it is written into the legislation that the cost will initially be distributed evenly across the industry, perhaps on a per-pub basis. That is similar to what happens with the groceries code adjudicator. However, the adjudicator will have the power in the future to vary the amount that it charges different companies, based on the amount of time it spends investigating and dealing with complaints about them.
There is therefore an advantage in complying and behaving well. Companies that need to be investigated often and are found to have breached the code should expect a higher annual levy, whereas if, as is by and large the contention, the smaller family brewers are examples of good practice—we did hear, however, that there is no bed of roses and they do get complaints—for them that £90-a-year cost under the statutory regulation could come down, so arguably the statutory system may cost them less than the voluntary system. The cost of contributing to the industry levy is therefore not the key issue at stake.

Toby Perkins: I share some of the Minister’s reservations about the exemption. We all recognise that part 4 of the Bill will end up looking different; it is a just a case of what changes will be made. The impact on family brewers will be far more expensive than we originally intended, so the least worst option would be to support amendment 162, which would deliver some of the measures that she suggests that the Government want. We all recognise that further work needs to be done after that to get the Bill to where we need it to be.

Jo Swinson: I understand the hon. Gentleman strongly putting the case for amendment 162, and the point that I will come on to is very much in its spirit, but I will explain why the code is best dealt with in secondary legislation. Those who tabled the amendments have almost suggested that they would like the code written into primary legislation, but as I said on Tuesday, that is not the right way forward.

Andrew Griffiths: The Minister is being patient with our questions. I thank her for her time, as I know that she wants to move on. However, she suggested that one reason why the code should not be in primary legislation was that she is not confident that the voluntary code would continue. The reality is that the voluntary code—PIRRS and PICAS—exists because the Secretary of State demanded that it be put in place. The back-stop or alternative is that if the voluntary code was not in place, the Secretary of State would obviously impose the code in the Bill. It is not credible to suggest that the voluntary code would somehow disappear over time if it were not in statute.

John Robertson: Order. Interventions are far too long.

Jo Swinson: Thank you, Mr Robertson. My hon. Friend gets to the crux of the issue. He proposes that if the risk, which I think is genuine, materialises, we could always pass more primary legislation to deal with that situation. He is of course right that the Government could do so, but we have an opportunity in this Bill to ensure that tenants are protected without having to wait to find an appropriate slot in the parliamentary schedule for primary legislation. He is absolutely right that if amendment 70 succeeds, this opportunity to ensure that tenants are protected in primary legislation would be lost, and that protection would then be subject to us passing primary legislation in future. Tenants would not thank us for missing this opportunity.

Sheryll Murray: Forgive me for intervening; I apologise to the Minister, who is being patient. The Government stated back in January that for every new piece of legislation imposed on small business, two would be removed. Will the Minister explain how introducing new legislation and imposing a new regulatory burden on small business can be justified under that promise?

Jo Swinson: I remind my hon. Friend that the Federation of Small Businesses has been campaigning for the change, because the tenants whom it seeks to protect are small business people. The Government’s “one in, two out” commitment is on an overall basis. The totals are totted up Department by Department, and the Department for Business, Innovation and Skills is ahead of schedule on deregulation. Indeed, the Minister for Business and Enterprise is championing the issue, on which we are making great strides, as we heard in Committee earlier this week, or last week.
On the size of family brewers, my hon. Friend the Member for South East Cornwall mentioned small companies, but we need to be clear that we are generally not talking about small companies. Family brewers vary considerably in size, but they are not all small or even medium-sized companies—[Interruption.]

John Robertson: Order. I say to the hon. Member for South East Cornwall that chuntering away from a sedentary position is not helpful. She will get the right to reply to the debate, so she should perhaps allow the Minister to continue.

Sheryll Murray: I apologise.

Jo Swinson: Thank you, Mr Robertson. When it comes to the number of employees or pubs owned, not all family brewers are small or even medium-sized companies. Some have a turnover of £100 million a year or more, and more than 2,000 employees. As the hon. Member for Chesterfield pointed out on Tuesday, there are pub-owning companies, such as Spirit, which has some 430 tied pubs, that may not be large by the definition in the Bill, but none the less may appear fairly big to many. If the amendment were to be passed, its tenants would have no statutory protection at all.

Toby Perkins: The Minister makes an important point. If amendment 162 is not passed, we will be left with two imperfect options, and she may have to return to the definition of exactly who will be covered.

Jo Swinson: I will come to the spirit of amendment 162, because it is the best solution. The idea is that we have a basic statutory code for all tied tenants and, rightly, more onerous obligations in the enhanced code, so things should be moved from the statutory to the enhanced code. There was a lot of support for that in the public evidence sessions and from various hon. Members. The Opposition Front Benchers, by tabling amendment 162, indicate that they think that would be a good approach. I had a meeting with some Committee members last Monday, and that proposal seemed to gather a degree of support, then at least, if not subsequently.
Most companies involved are already signed up to the voluntary code. The additional requirements in it tend to be just good business practice and are not particularly problematic. A good example, as mentioned in the evidence sessions by my right hon. Friend the Minister for Business and Enterprise, is the requirement to have a code compliance officer. There need not be a full-time employee doing that job; it can be part of someone’s role and need not be onerous, especially if the company is compliant. The requirement is to have a named individual so that people know who to go to.
I understand the Committee’s concerns about the impact on family brewers, and that is why I suggested changing the split of what is in the statutory code and what is in the enhanced code. Mr Robertson, I wrote to you and your fellow Chairs on Friday advising that I have decided, in response to the strength of feeling from members of the Committee, to move the requirement for an annual compliance report to the enhanced code. The hon. Member for South East Cornwall mentioned that she saw that in my letter but could not find the other changes.
As my hon. Friend the Member for St Austell and Newquay pointed out, point 2 of my letter mentioned that the recording of business discussion requirements will be changed so that it relates only to discussions about rent, repairs and matters impacting on the tenant’s business plan. We suggested making further drafts of the code so that it directly copies the existing voluntary code. As I said in my letter, it makes sense to give further consideration to the issue of the code compliance officer if people feel it is particularly onerous for there to be a named individual in that role and, indeed, for the Royal Institution of Chartered Surveyors valuer to have to sign off rent assessments, rather than them just having to be done in line with RICS principles. That could be moved to the enhanced code.

Toby Perkins: I want to press the Minister one more time. The hon. Member for South East Cornwall said that family brewers lack confidence in the process. They were told that this would not be in the Bill, and now it is. She said that they strongly feel that if it is in secondary legislation, there will be a lack of confidence, so she is anxious to push her amendment.
Our amendment offers many things that the Minister said she agreed with. I appreciate that it may need a little bit of tidying up, but the Committee could accept the spirit of the hon. Member for South East Cornwall’s amendment, back amendment 162 and put it in the Bill; that is the least worst option at the moment.

Jo Swinson: I think that the spirit of amendment 162 is what we need to include. I have a particular concern about the wording, because it refers to
“pub owning companies who own less than 500 premises”.
My concern is about a loophole, in terms of the ownership becoming the key issue, because clearly companies would be able to lease premises and so on. There is merit, as the hon. Gentleman said, in having flexibility in the code.
I wish to publish a new draft revised code, before Report, that takes into account the issues that have been put forward. I am open to suggestions about specifics. For example, in amendment 162, in addition to the issues that I mentioned about RICS-qualified surveyors having to sign off the assessments, there is a reference to business development managers and training requirements. To clarify, there is no requirement to have a business development manager as such. In the pubs code, a business development manager is defined as
“those employees of a Pub Owning Business who are, from time to time, responsible for managing the relationship with, or are otherwise responsible for, the Pub Owning Business’s interactions with the Tenant.”
It is not about a pub company of any size having to have a business development manager; that is just a definition of the role. None the less, I accept that the issue about training requirements could be moved to the enhanced code.
I think this is, from a policy perspective, the best solution for us to achieve; I think it is a constructive way to proceed. I thank hon. Members for expressing their concerns about what has already been drafted, and I think it is in the spirit of good governance to put a draft code out there and respond to concerns that are raised.
I think tenants will prefer having the code in secondary legislation with the flexibility that it provides. For specific and technical reasons, I am concerned about amendment 162. I am not keen to accept that amendment as such, but the spirit of what it proposes, and the constructive suggestion that has been made, is absolutely the best way forward for us today.
I hope that the Committee recognises that the Government have moved significantly to address the genuine concerns about family brewers, but I hope it also recognises that it really would not be doing a service to tenants if we excluded those 6,000 tenants from statutory protection. Those who have campaigned hard for such protection would not thank the Committee for removing it from 6,000 tenants.
Amendments 159 and 160 aim to change the threshold for the enhanced code from 500 or more tied pubs to companies that own 500 or more or premises, which would potentially include more companies and bring into scope companies that own 500 pubs of any kind. We had been attempting to be more targeted by focusing this measure on tied pubs, so there is a rationale for our decision to do things in the way that we have. That being said, I recognise the concerns that have been expressed and the argument that the total number of pubs that a company owns is a good indicator of its market share, so I am happy to consider that issue further, too.
Amendment 192, tabled by my hon. Friend the Member for Burton, deals with protection for prospective tenants. The Bill would give prospective tied tenants transparency and information right from the start of meaningful negotiations with the pub-owning business. That is crucial to redress the imbalance in bargaining power between the two parties.
Significant evidence has been sent in over many years from tenants who say they received incomplete or misleading information from pub-owning businesses, and signed disadvantageous contracts as a result. Amendment 192 would mean that the transparency and information rights in the pubs code would not be available to prospective tenants until negotiations were virtually complete and they were on the point of signing their agreement with the pub-owning company. By that time, many of them would have invested considerable time, resource and commitment in the prospective contract and might find it harder to walk away if they discovered that all was not as they had assumed.
It is important that we redress that imbalance between the two parties and ensure that tenants have quality, robust information from the outset, so that they can go into a situation with their eyes wide open and see whether it is right for them. For that reason, I will resist amendment 192.
Amendment 66 would exclude tenancies at will and agreements of less than 12 months from the scope of the code. The inclusion of tenancies at will in the Bill is driven by two specific concerns: one is for all tied tenants to be protected by the code, and the second is for pub-owning companies not to be able to avoid their responsibilities under the code, for example by using rolling short-term agreements.
As has been outlined, tenancies at will are typically used to cover the period when parties are negotiating for a longer-term agreement, sometimes in the circumstances that were mentioned, such as an emergency, or an event that has given rise to a sudden need for a short-term tenancy. I consider that if that is a lengthy process, it is right for tenants to be protected.
In an evidence session, we heard from Simon Clarke that a tenant taking a tenancy at will as a trial period for running a pub is likely to move into the property and settle his or her family there, in the same way as a tenant with a longer agreement. As a result, the tenant with the trial period might be less able to negotiate at a later date. We do not expect the inclusion of tenancies at will to impose significant new burdens on pub-owning businesses.

Andrew Griffiths: The Minister quoted Simon Clarke, who said that tenancies at will quite often roll over. Earlier, she prayed in aid Kate Nicholls from the ALMR, whose evidence the Minister has, and it specifically stated that that is not the case: that tenancies at will are not rolled over, but are short-term individual contracts to fix a problem. She supported Kate Nicholls last time, so why does she not accept what the ALMR is saying this time?

Jo Swinson: I listened with great interest and I saw the evidence from Kate Nicholls. I am not dismissing the concern out of hand. I am outlining the reasons why we decided that it would be sensible to include tenancies at will. The reason was that we had also received evidence that in longer-term circumstances we might inadvertently create a loophole where rolling short-term tenancies could be used to undermine the code. In a lot of the different provisions—we will come on to franchise agreements—and around the issue of the number of pubs to which the statutory code applies, we need to be wary of creating a situation in which there are, in effect, loopholes or get-outs and other ways in which perhaps less scrupulous companies may seek a way to get around the provisions that we are rightly putting in place. That is another reason why I have concerns about amendment 70.
I recognise the Committee’s concerns about the inclusion of the agreements. It is something that, again, I am happy to go away with, consider and return to on Report after seeing whether we may exempt from the code agreements that are genuinely temporary and short term. We might have to think about whether that is a 12-month period, as outlined by the hon. Gentleman, or whether a different period might be more appropriate. It would be helpful and wise to have further discussion with stakeholders on where the right level might be. I welcome our discussion in Committee.

Toby Perkins: The Minister is right to say that that is another legitimate question that we might have to return to on Report. I share her concern that the existing drafting might allow businesses to slip through the net. Another legitimate point, however, is that we were originally talking about 500 pubs—that was the original concentration—so I urge her to think again about amendment 162 perhaps being the least worst option to alleviate things.

Jo Swinson: As I have said, there are difficulties with the drafting of amendment 162. The spirit of what is being suggested is that the enhanced code should include the additional measures and that is where we should move things, whether training for business development managers, having to have the RICS-qualified individual signing off the rent assessments or, as I have already indicated, the compliance report and the changes to the business discussions needing to be recorded. The enhanced code is where the more onerous requirements should be.
The statutory code should generally reflect the existing voluntary code. To use the words of my hon. Friend the Member for Burton, that is making pubcos do what they say they are doing. Pubcos complying with the voluntary code will then have it as a statutory code and can continue what they are doing, so they will not have a huge additional burden. Carrying the weight of voluntary regulation on their shoulders might not be a concern if it continues for one or two years, but who is to say what the circumstances would be in three, four or five years’ time? If at this juncture we exclude those 6,000 tenants that we are suggesting should have the basic protection of the statutory code, it would be a missed opportunity that we will regret.

Toby Perkins: I take the Minister’s point to an extent. All the way through the discussion, if we think about the three years, we have been calling for a statutory code, but the Government were saying, “No, it isn’t right.” All we were ever asking for was for 500 pubs. Now the Government are suddenly saying, “Yes, but we need to go further.” That is a really strange about-face, given where we were just a year or so ago.

Jo Swinson: In his opening remarks on Tuesday, the hon. Gentleman took us through the history of the issue. He highlighted the fact that the Government had changed their position, and that is a fair point to make. It is a positive thing that the Government can listen to concerns raised on both sides of the House, including by the hon. Gentleman, who has raised this issue on, I think, 62 different occasions—perhaps it is 62 plus 39.

Toby Perkins: Sixty-three now.

Jo Swinson: Fantastic. He has certainly raised the issue, and the Business, Innovation and Skills Committee and its predecessor Committees have obviously done so too. It would be remiss of me not also to mention the tenacity of my hon. Friend the Member for Leeds North West (Greg Mulholland) in pursuing this issue, and he is obviously involved in the all-party Save the Pub group too. There is therefore a whole range of stakeholders in the House, but the issue has also been pushed by the Federation of Small Businesses and campaign groups outside the House.
It is right to say that the Government have moved significantly; we have consulted and we have recognised that if we go ahead with our initial consultation proposal on providing protection, there is a real danger that we would actually end up with a loophole that would undermine what we aim to do. That is my real concern.
I absolutely understand that my hon. Friend the Member for South East Cornwall is standing up for local businesses in her constituency that are worried about this issue, and I understand that those concerns are genuine, but I worry about the unintended consequences for the 6,000 individuals who would be affected and whom we are trying to protect.

Sheryll Murray: To make it clear, I am standing up for not only my constituents, but all the members of Independent Family Brewers of Britain.

Jo Swinson: My hon. Friend has put that firmly on the record.
I understand that the proposals are well-intentioned and arise from a genuine concern. However, I have outlined a constructive approach, and many of the witnesses that we heard in the public evidence sessions talked about it. The hon. Member for Chesterfield has also talked about it in his proposals, which, for specific technical reasons, do not work, although they do make a strong case. The approach I set out is about getting to a solution that deals with people’s concerns. I appreciate that my hon. Friend the Member for South East Cornwall may not be convinced, but I think it does deal with the concerns that have been raised by her, by other members of the Committee and by MPs who, although they are not on the Committee, have also engaged on this issue.
The approach I have outlined is a pragmatic and sensible solution that, importantly, retains in law the protection we have talked about, while ensuring that the requirements and regulations involved are not an additional burden. Those who already comply with the voluntary code can continue to comply with the same requirements, but those will have a statutory footing, and the costs of the adjudicator will be shared by the whole industry.
To answer the question from my hon. Friend the Member for Plymouth, Sutton and Devonport, tenants know that they can go to the adjudicator if they think the code has been breached, rather than relying on the voluntary system that is in place now, which, as I said, has its merits, but which has also had its critics.

Sheryll Murray: Just to make it clear, does the Minister accept that the pubco that my hon. Friend the Member for Plymouth, Sutton and Devonport mentioned would be included in the enhanced code because of the number of pubs it has?

Jo Swinson: Absolutely. In my hon. Friend’s proposal, there would be only an enhanced code—there would be no general statutory code—and that is the crux of the problem I have with it. If we get rid of that statutory protection, it could be reinstated only through primary legislation. We need to make sure we have a code that has the burdens in the right places, but which is also, crucially, flexible enough that changes can be made to it—with the consent of Parliament, but through secondary legislation—so that it can respond to changes in the industry. Changes in the way agreements are being made have been mentioned, and I will talk briefly about franchise agreements in relation to new clause 10. We want the code to be flexible enough to be able to respond.

Toby Perkins: The Minister is right that we are all concerned about the loopholes. It is hard to imagine a pubs code that does not include companies such as Enterprise. The Minister is right that companies will look for ways to reshape their business models to exempt some or all of their pubs. Whatever happens today, we will have to return to the issue of who will be covered by the measure on Report. Two legitimate concerns have been raised here, neither of which has been solved. I leave it to the Minister to consider them.

Jo Swinson: The pragmatic solution to dealing with the burdens on businesses and ensuring protection is to publish a revised code on Report. We must make it clear that the enhanced code will cover the compliance report, the qualified RICS surveyor who must sign off the assessment, and the training for business development managers.
I know the hon. Gentleman wants me to accept his amendment. However, if at some point in the future the behaviour of pub companies with fewer than 500 pubs highlighted a massive training gap that we wanted to rectify by requiring those companies to provide training to their business development managers, having to change primary legislation to do that would be like using a sledgehammer to crack a nut. Therefore, in order to ensure flexibility and get the code right, we will publish a revised code that we can discuss on Report. If hon. Members are unhappy with the revised code, the House may decide that we must write it into primary legislation.
I hope the hon. Gentleman will be reassured by the revised code, which is the right way to ensure flexibility. However, if the House decides that it does not want the 6,000 tenants to have that basic statutory protection, that would be agreed. I would be very sad if that happened, because we want to ensure that it is not only the 14,000 or 15,000 tenants of the larger pubcos that have the guaranteed basic protection. We do not want the 6,000 tenants to have to rely on a voluntary model that is not guaranteed in the long term because the contributions from the larger pub companies would be lost. We must not miss this opportunity to ensure those tenants remain within the scope of the Bill.

Toby Perkins: This is a very strange debate, because the Minister’s party and the Government have been saying for three years that the existing measures are largely working. The Bill was not about the smaller pub companies, but they have been brought into its scope. The Minister is now saying that we cannot possibly leave those companies with things that the Government said are okay. Her argument is the opposite of what we have been hearing for the past three years.

Jo Swinson: I understand the hon. Gentleman’s point, but we have had a consultation on this issue and we are responding to points put forward by a range of stakeholders. I met individuals who have been through the PIRRS and PICAS system, and many of them felt pretty dejected by their experience, even if they “won” their case.
It is generally preferable to have self-regulation when possible, and the Government’s desire for it is right, but it is not always a glowing success. None of us wants to be in this situation, but we are discussing this issue in relation to primary legislation because these problems are continuing. We do not want to create loopholes or remove basic protections. The changes I am suggesting to the draft code will codify something that companies say they are doing voluntarily. Therefore, they will not create an onerous additional burden of regulation. The point is to have a much smoother, simpler system, without one set of bodies dealing with a small section of tenants and an adjudicator dealing with the vast majority of the industry. It will be much easier and more straightforward for all tenants to know where to go if they have any difficulties.
 Sheryll Murray  rose—

John Robertson: Order. There seems to be a large amount of repetition creeping into the exchanges. I think it is time to move on. The hon. Lady may make her point, but I am not having any more repetition.

Sheryll Murray: Thank you, Mr Robertson—I do want to ask a question. According to the IFBB consultation, in 2012-13 there were only two applications made to PIRRS and none to PICAS, and only five complaints were made about business development managers. The Minister seemed to indicate that the numbers were quite considerable—does she have more up-to-date figures that she can share with us?

Jo Swinson: Overall numbers of applications to PIRRS and PICAS are obviously not huge, although the hon. Lady cited figures relating specifically to family brewers. I was saying that there is concern in parts of the industry about how effectively and quickly PIRRS and PICAS can respond to complaints. For some, that has been a disincentive to their bringing forward cases. The desire is for an adjudicator to be able to intervene at an arbitration stage, meaning that a response need not take so long. The Business, Innovation and Skills Committee recognised that awareness of PIRRS and PICAS was low among many tenants. If something applies only to a small part of the industry, that will be even less helpful for awareness, bearing in mind the trade press and so on. That is another reason for having one adjudicator that will be much better publicised in the industry. Hopefully, awareness will be driven up across tenants.
I am conscious of your direction on repetition, Mr Robertson, so would like to turn to proposed new clause 10, which was spoken to at the start of this morning’s proceedings and would exempt from the scope of the code any franchise agreement accredited by the British Franchise Association.
The Government recognise that franchises are often different from traditional tenancies. The Committee discussed the issue on Tuesday during our consideration of amendment 59 and, as I set out then, all the pub franchise models that we are aware of include the tying of beer and other products. Although they may have different means of financial transaction and charging, there is, therefore, the same potential for the relationship to be abused, so they should fall within the scope of our measures. As the hon. Member for Chesterfield pointed out, we do not want to create loopholes for companies that are not keen on implementing the spirit of the Bill and so look for ways to get around it so that they do not have to comply with the protections.
My officials have obviously discussed the BFA code of ethics. They have spoken about the Bill to the BFA, and its input has been very helpful. It has agreed that its voluntary arrangements do not go as far as the protections offered by the draft statutory code and, in particular, the commitment to “no worse off”. The number of franchises in the pub industry is currently relatively small, but it is growing. Because of that loophole potential, we should not include new clause 10 in the Bill, although I welcome the fact that my hon. Friend the Member for Burton has said that he is not minded to press it to a vote.
We have had a good discussion of the issues. I am conscious that I must not continue to repeat myself, but hope that I have reassured the Committee that the Government have genuinely listened to the concerns that have been expressed. We have found a constructive way forward that maintains protections for tenants; that means that tenants will not be at risk of the voluntary regulation having to continue and potentially failing; and that deals with the need not to be too onerous. I therefore hope that Members will withdraw their amendments. If they do not, I hope that other Members will not support them.

Sheryll Murray: I do not wish to detain the Committee any longer than necessary, so I would like some guidance, Mr Robertson. Could I, with your permission and that of the Committee, press the three amendments in my name to a vote as a group, or might it be more appropriate to press only amendment 71 to a vote?

John Robertson: The amendments in question do not come into the Bill until clause 60. At that point the hon. Lady will get the opportunity to move them separately. If she wishes to press them to a vote then she may do so at that stage. We are currently debating amendment 151.

Sheryll Murray: I do not intend to press amendment 151 to a vote. It is an enabling amendment, should later amendments be accepted by the Committee. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 162, in clause36,page31,line4,at end insert—
“(b) the Secretary of State shall ensure that provisions of the Pubs Code which carry costs which smaller businesses would find difficult to absorb, as prescribed, do not fall upon those pub-owning companies who own less than 500 premises,
(c) such provisions to be prescribed may include—
(i) the duty to employ a Code Compliance Officer, and to file annual Code Compliance Reports,
(ii) the duty to employ a business development manager and provide training thereto,
(iii) the duty to provide parallel free of tie rent assessments”—(Toby Perkins.)

This amendment exempts small family brewers from certain aspects of the draft Pub Companies Code published in “Pub Companies and Tenants: Government Response to the Consultation” by BIS in June 2014.

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Amendment proposed: 193, in clause36,page31,line19,at end insert—
“(g) require large pub-owning companies as defined in section 60 of this Act to provide a list to their tenants of any products and services they provide to tied tenants which such a company considers to have a monetary value; and a statement of what that amount is and how it was calculated; and the Secretary of State or any tied tenant may refer that amount to the adjudicator for an assessment of the accuracy of any estimate or the reasonableness of any assumption in relation to each amount.”.—(Toby Perkins.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

John Robertson: We now turn to the question that clause 36 stand part of the Bill. I am exercising my discretion and propose the question without further debate. I think we all agree that it has been exhausted.

Clause 36 ordered to stand part of the Bill.

Clause 37 ordered to stand part of the Bill.

Clause 38  - Inconsistency with Pubs Code etc

Amendment proposed: 194, in clause38,page32,line12,at end insert—
“(d) which purport to give only the pub-owning company the right to break a tie agreement.”.—(Toby Perkins.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Clause 38 ordered to stand part of the Bill.

Clauses 39 to 49 ordered to stand part of the Bill.

Clause 50  - Recovery of investigation costs

Amendment proposed: 195, in clause50, page37, line19, leave out “or wholly without merit”.—(Toby Perkins.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Clause 50 ordered to stand part of the Bill.

Clauses 51 to 58 ordered to stand part of the Bill.

Clause 59  - “Tied pub”

Amendment proposed: 157, in clause59, page40, line30, leave out “D” and insert “E”—(Toby Perkins.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Clause 59 ordered to stand part of the Bill.

Clause 60  - “Pub-owning business” and “large pub-owning business”

Amendment proposed: 71, in clause60, page41, line6, leave out “one” and insert “500”—(Sheryll Murray.)

Question put, That the amendment be made.

The Committee divided: Ayes 11, Noes 7.

Question accordingly agreed to.

Amendment 71 agreed to.

Amendment made: 72, in clause60,page41,line8, leave out “large”—(Sheryll Murray.)

Amendment proposed: 159, in clause60, page41, line10, leave out “tied”—(Toby Perkins.)

Question put, That the amendment be made.

The Committee divided: Ayes 7, Noes 11.

Question accordingly negatived.

Amendment made: 73, in clause60,page41,line12,leave out “large”—(Sheryll Murray.)

Clause 60, as amended, ordered to stand part of the Bill.

Clauses 61 to 63 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Mel Stride.)

Adjourned till this day at Two o’clock.